A blog by Americans for Financial Reform

Main menu

Monthly Archives: September 2017

Making an appearance at a Senate Finance Committee hearing on the massive tax cut legislation now being debated, individuals from partner organizations of the Take on Wall Street campaign put on their Sunday best — so they’d look at least a bit like Wall Street moguls — and pleaded for a handout.

Carrying signs with messages like “Tax Relief for Wall Street!” and “Spare a Loophole!,” the participants sought to highlight how the Republican tax plan amounts to a giveaway to Wall Street money managers and other members of the 1%. (See statement by Take on Wall Street Campaign.

A Republican tax framework released today points to a reduction in the corporate income tax rate from 35 percent to 20 percent.

Big Banks like Wells Fargo and JPMorgan would be among the biggest beneficiaries of such a tax cut, according to a Bloomberg analysis based on an earlier but similar version of Trump’s tax plan. The six largest US banks (Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo) — which are enjoying near record-high profits — could avoid paying billions a year in taxes and could see their annual profits soar. Wells Fargo — embroiled in a long list of outrageous abuses of consumers — would enjoy among the highest annual tax savings of all.

That’s on top of the billions that the most profitable US banks already avoid in taxes by using various loopholes. According to Institute on Taxation and Economic Policy data, nine of the largest and most profitable US banks paid an average federal tax rate of only 18.6% between 2008 and 2015, and collectively avoided paying about $80 billion in taxes in this time.

Trump’s tax plan also includes a proposal to lower the tax rate on so-called “pass-through” businesses – like hedge funds, which have their income taxed under the individual income tax — to 25%. This proposal was presented by the White House and Republican leadership in Congress as a tax cut for small businesses. However, 79 percent of the benefit would flow to filers with incomes above $1 million according to the Center on Budget and Policy Priorities.

“Instead of tax-rate cuts for these big corporations, the coming tax debate in Congress should focus on making wealthy individuals and big corporations pay their fair share,” wrote Sarah Anderson, Director of the Global Economy Project at the Institute for Policy Studies, in a New York Times editorial.

The Take on Wall Street campaign — a group of over 50 community groups, unions, consumer advocates and others, including Americans for Financial Reform, Communications Workers of America, Public Citizen, Institute for Policy Studies, the AFL-CIO and Americans for Tax Fairness — is calling out the charade, and urging Congress to adopt a set of tax reform measures that would raise more than $1 trillion in additional revenue and discourage dangerous Wall Street speculation.

In September 2016, Wells Fargo admitted to opening millions of unauthorized accounts and signed a settlement requiring payment of $185 million in penalties. That news, remarkable as it was, has turned out to be very far from the whole story of the bank’s misdeeds. One after another, Wells Fargo has been hit by a succession of scandals, all growing out of its aggressive efforts to extract as much revenue as possible from every customer, by fair means or foul.

Here, in brief, are the major forms of systematic wrongdoing in which Wells Fargo has been implicated:

BOGUS ACCOUNTS

When the scandal broke: September 2016What we know: Wells Fargo’s frontline workers faced continual pressure to meet overly ambitious or impossible sales quotas, and some responded by signing people up without their knowledge for credit cards, online bill pay, overdraft protection, and other fee-generating services. The company now puts the total number of fake accounts at 3.5 million — fully 2 million more than its original September 2016 estimate of 1.5 million — and the cost to its customers at $6 million, which Wells has said it will refund. In addition to the dollar damages, these practices injured people’s credit scores and their ability to secure loans, rent apartments, or land jobs.

Workers who resisted or tried to report such problems were ignored, punished, or fired. After leaving the company, some found it hard to get hired by other banks because Wells Fargo had characterized them as unreliable or failed to provide favorable references.

At least as far back as 2013, customers were trying to bring lawsuits over the fake accounts. Because of fine-print clauses buried in the contracts governing their legitimate accounts, however, Wells Fargo was able to force such complaints into a secret, one-on-one arbitration process, which allowed the company’s practices to continue and go undetected for years. Even now, Wells Fargo insists that defrauded customers should be barred from having their day in court.

The insurance was more expensive than policies borrowers could have found independently; and because the charges were typically folded into loan payments made through automatic debiting, many people ended up paying twice over – for insurance they secured on their own and for the coverage imposed on them by Wells Fargo. These extra charges led to higher rates of delinquency, default, and repossession.

The bank has agreed to return some $80 million to an estimated 570,000 affected customers, including 20,000 whose vehicles were repossessed. But some victims are far from satisfied. An Indiana man, Paul Hancock, says he was charged $598 for insurance and hit with a late fee for a missed payment – even after repeatedly telling the bank he already had his own coverage. Hancock is the lead plaintiff in a class-action lawsuit seeking damages far beyond what Wells has offered. “Refunds,” his lawyer says, “don’t address the fraud or inflated premiums, the delinquency charges, and the late fees.”

AUTO INSURANCE RIPOFF – PART 2

When the scandal broke: August 2017What we know: This problem involves another form of insurance, Guaranteed Auto Protection or GAP, which protects lenders and borrowers in cases of theft or when the value of the car is no longer sufficient to cover the remaining loan balance. Wells Fargo and its dealer-partners aggressively marketed GAP insurance to borrowers, but often failed to provide mandated refunds to those who paid off their loans early.

Wells Fargo says it is still trying to assess the number of people affected. The total, according to the New York Times, is likely to be in the “tens of thousands.”

ILLEGAL REPOSSESSION OF SERVICE MEMBERS’ CARS

When the scandal broke: September 2016What we know: Wells Fargo has agreed to pay $24.1 million in refunds and penalties for seizing hundreds of cars from active-duty servicemembers without the court order required by federal law. In one case (which triggered a Justice Department investigation), Wells repossessed a National Guardsman’s used car while he was preparing to deploy to Afghanistan. The company then tried to make the guardsman pay more than $10,000 to cover the difference between his loan balance and the price his car had been resold for.

MAKING SMALL BUSINESSES PAY HIDDEN CREDIT-CARD FEES

When the scandal broke: August 2017What we know: A Wells Fargo joint venture has been accused of overcharging small businesses for processing their credit and debit card transactions. A class-action lawsuit claims that after signing three-year contracts with a $500 early-termination penalty, merchants got sandbagged with fees that were not properly disclosed. Some of those fees, they say, were falsely labeled as “interchange charges,” making it sound as if they had been imposed by credit card companies when, in fact, a chunk of the money went to the Wells Fargo partnership. Hundreds of thousands of businesses across the country may have been affected, according to the lawsuit.

The bank has denied these claims, asserting that its “negotiated pricing terms are fair and were administered appropriately.” But a former employee told CNN that he and his sales team were directed to target the most unsophisticated and vulnerable retailers. They were told “to go out and club the baby seals – mom-pop-shops that had no legal support,” as he put it.

DECEPTIVE MORTGAGE MODIFICATIONSWhen the scandal broke: June 2017What we know: Wells Fargo made unauthorized changes in the terms of mortgages held by homeowners who had filed for bankruptcy. Taking advantage of a government program meant to help troubled borrowers, Wells shifted people into modified mortgages that featured lower monthly payments, but, as explained in the fine print of paperwork that people were unlikely to read, kept them on the hook for additional years or decades, significantly increasing their interest obligations and the bank’s potential profits. Along the way, Wells pocketed incentive payments, at taxpayer expense, of up to $1,600 per loan.

Lawsuits charge the company with failing to inform bankruptcy courts of these changes as required by law. Although the company disputes the point, Wells has been sharply criticized by judges in North Carolina and Pennsylvania. One judge described the bank’s methods as “beyond the pale.”

In separate cases involving tens of thousands of additional homeowners in bankruptcy, Wells Fargo has been accused of improperly changing the amounts of mortgage payments to cover adjustments in real estate taxes or insurance costs. In November 2015, the bank entered into a settlement with the Justice Department, agreeing to deliver $81.6 million in financial relief to some 68,000 affected borrowers.

STEERING MINORITY HOMEOWNERS INTO HIGHER-COST MORTGAGESWhen the scandal broke: May 2017What we know: During the subprime-mortgage boom years, many banks and brokers were guilty of steering minority homeowners into needlessly expensive and dangerous loans. Wells Fargo now stands accused of continuing to do so even after agreeing to a $175 million settlement of similar charges at the federal level in 2012. According to a lawsuit brought by the City of Philadelphia, 23 percent of Wells’ loans to minority residents of Philadelphia between 2004 and 2016 were high-cost, high-risk, while just 7.6 percent of its loans to white homeowners fell into that category. Even the most credit-worthy African-American borrowers were 2.5 times as likely as comparable white borrowers to receive such a loan, and Latino borrowers 2.1 times as likely, the city says.

Wells Fargo describes the Philadelphia charges as “unsubstantiated,” but Oakland, Calif., has brought a similar action and the company has settled cases with the cities of Baltimore and Miami.

OVERDRAFT OVERCHARGESWhen the scandal broke: August 2010What we know: Wells Fargo is one of a number of banks that routinely made customers pay extra overdraft fees by tinkering with the order of debit charges. Instead of processing a day’s transactions as they came in, the bank would make the biggest payments first, maximizing its own revenues by maximizing the cost to its customers.

Wells announced that it was abandoning this practice in 2014. But while other banks, including Bank of America, JPMorgan Chase, and Capital One, have agreed to compensate customers for damages, Wells Fargo has so far refused to do that. Even after losing a case in California and being ordered to pay $203 million in relief, the company continues to defend its past practices and to assert the right to use forced-arbitration clauses to block consumers from taking the company to court over the issue. A federal appellate court in Atlanta is currently weighing Wells Fargo’s appeal of a lower court’s ruling against its efforts to force these claims into arbitration.

VETERANS’ MORTGAGE SCAMWhen the scandal broke: October 2011What we know: A whistleblower lawsuit filed by two Georgia mortgage brokers accused Wells Fargo of defrauding veterans and taxpayers out of hundreds of millions of dollars. The problem involved government-guaranteed home refinancing loans. Wells violated federal rules by making veterans pay lawyers’ fees and closing costs, and disguised those forbidden charges in order to evade detection by the Department of Veterans Affairs. In 2011, Wells reached a $10 million settlement of a related class-action lawsuit on behalf of more than 60,000 veterans. In August 2017, the company agreed to pay an additional $108 million to the federal government.

CHARGING MORTGAGE APPLICANTS FOR THE BANK’S DELAYS

When the scandal broke: January 2017What we know: This one involves fees for borrowers who are late submitting paperwork on locked-rate mortgages. According to at least half a dozen ex-employees, Wells Fargo branches in the Los Angeles area blamed borrowers for delays caused by the bank’s own errors or understaffing. That practice has also been the subject of a borrower class-action lawsuit and an investigation by the Consumer Financial Protection Bureau. “We are talking about millions of dollars, in just the Los Angeles area alone, which were wrongly paid by borrowers/customers instead of Wells Fargo,” a former worker charged in a letter to the Senate banking committee.

FRAUDULENT FEES ON STUDENT LOANS

When the scandal broke: August 2016What we know: Wells Fargo agreed to a $4.1 million settlement of a Consumer Bureau lawsuit accusing the company of charging illegal fees and failing to update inaccurate credit report information in connection with loan payments made between 2010 and 2013. Under the law, Wells was supposed to help students avoid unnecessary fees; but when payments fell short of the full amount due on multiple loans, the bank apportioned them in a way that maximized fees, according to the lawsuit. By not disclosing that fact, Wells left borrowers “unable to effectively manage their student loan accounts and minimize costs and fees,” the Bureau said. Wells was also charged with illegally adding late fees to the accounts of students whose initial payments arrived on the final day of a six-month grace period.

LYING TO CONGRESS

When the scandal broke: August 2017What we know: Wells Fargo executives, including former CEO John Stumpf, appear to have withheld information related to auto-insurance fraud during congressional hearings held in September 2016. According to the bank’s own timeline, its internal review unearthed the auto-insurance errors in July 2016; the bank then retained the consulting firm Oliver Wyman to assess the problem, and it decided to change its practices at around the time Stump was answering Congress’s questions about the fake-accounts scandal.

But the bank kept its auto-insurance woes secret until July 2017, when the New York Times obtained a copy of the Oliver Wyman report and published a story about it. Meanwhile, as a witness before the House and Senate banking committees, Stumpf made no mention of any problems related to auto insurance, even when he was asked directly about fraudulent activity in other areas. The bank once again failed to disclose these problems in written responses to questions from members of Congress.

Thirty-three groups, including Americans for Financial Reform and Public Citizen, have asked Congress to hold further hearings on this issue as well as newly revealed consumer abuses. To knowingly withhold relevant information from a congressional inquiry is a criminal offense, punishable by up to five years in prison.

Categories

Meta

This blog is maintained by AFR as a forum for ongoing news and commentary about the fight for effective financial reform. Blog posts represent the opinions of their authors / posters, and do not necessarily represent the views of the AFR coalition or coalition members.